MARKET REPORT: Turmoil in Iraq fuels spike in oil and gold prices as violence continues to flare up

The growing crisis in Iraq continues to preoccupy both politicians and investors.

Escalating violence has raised fears of a sectarian civil war, and concerns that this could disrupt the oil supply has pushed up the global price of both oil and gold, which is traditionally seen as a haven for investors during times of conflict.

Oil companies and miners dominated the FTSE leaderboard yesterday, with Fresnillo up 15p to 822p, Tullow Oil up 15p to 856.5p, commodities trader Glencore up 4.5p to 322.5p, BHP Billiton up 15p to 1865p, Randgold Resources up 51p to 4615p, Anglo American up 12p to 1422p and Petrofac up 11p to 1268p.

Conflict: Iraqi Army soldiers and volunteers chant slogans against the al-Qaida inspiredc group Islamic State of Iraq and the Levant (ISIL) pushing oil prices up

Oil prices nudged up 0.5 per centto $113 a barrel, and have risen from $106 since the beginning of May. Over the past week gold has risen around $20, with prices edging up 0.7 per cent to $1281.75 yesterday.

Alastair McCaig, an analyst at IG, said: ‘The boost in mining stocks is a direct consequence of gold shooting up in recent days. We are now seeing a natural migration to safe havens – and gold is seen as a hedge in times of war. Anything that destabilises the region will cause a spike in gold and oil prices.’

Telecoms behemoth BT was the second biggest drag on the Footsie – which fell 23.21 points to 6,754.64 – with shares falling 9.4p to 384.9p.

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Some traders cited reports that the shortfall in its huge final salary pension scheme has jumped 50 per centto around £6billion.

This will force BT to increase its pension contributions to plug the gap, reducing its financial firepower in the fight with BskyB over television rights.

Investors are also nervous about the prospect of a crackdown by Ofgem in the broadband market. The regulator is due to publish proposals on retail and wholesale pricing for superfast broadband which could threaten BT’s dominance.

Shares in Tesco fell 3.15p to 288.85p after Moody’s downgraded its rating on the supermarket giant’s long-term debt from Baa1 to Baa2.

This is the second-lowest investment grade rating and reflects concerns that Tesco is caught in no man’s land between budget rivals Aldi and Lidl and the upmarket retailers such as Waitrose.

Moody’s may be telling investors what they already know, but its grim verdict may heap further pressure on embattled boss Philip Clarke, after it emerged earlier this month that the firm is losing an estimated one millions shoppers a week.

Wizz Air may have very little in common with Lloyds spin-off lender TSB, but the decision by the budget carrier to shelve its planned float on the London Stock Exchange due to volatility in the airline business will not go unnoticed by Lloyds boss Antonio Horta-Osorio and TSB chief executive Paul Pester.

Lloyds (down 0.92p to 76.66p) is due to announce the final price for TSB shares on Friday, when conditional trading on the stock market will also begin. The retreat by Wizz Air adds to growing concerns of ‘investor fatigue’, with the appetite for shares apparently on the wane after a flurry of listings.

Fashion retailer Fat Face abandoned its IPO last month due to lack of demand and the high-profile listing of over-50s giant Saga fell flat.

Lloyds has priced TSB ‘to go’ with a range of 220p to 290p per share for 25 per centof the business being sold in the first tranche. If sold at the bottom of the range, as some analysts are predicting, this would mark a seemingly generous 27 per centdiscount from TSB’s book value of £1.5billion.

Pester has declared that it has received orders from institutional investors for all 80 per centstake they have been allocated. To entice small investors to buy the remaining 20 per cent, they are being offered one bonus share for every 20 up to a £2,000 limit, as long as they hang on to them for a year.

But analysts at CMC Markets believe this may not be enough.

Given the fact that Lloyds was looking to sell a similar stake to the Co-op for £750million just a few months ago, CMC’s Michael Hewson said the relatively high price tag is ‘bizarre’ given the ‘fragile’ demand from small investors.

He believes that TSB’s timing ‘could not be worse’, with the launch of Tesco’s current account last week adding to competition on the High Street.

He said: ‘Ultimately the IPO’s success or failure will depend on pricing and allocation, and after so many false starts the bank’s management really can’t afford to get this one wrong. Unfortunately their timing could not have been worse, and it probably makes this IPO a risky one for the small investor, which suggests this pricing could come in at the low end of expectations.’